We have seen a sharp drop in demand in North America and Europe during the third quarter, and we do not expect demand conditions to improve in the near term.
Jeff M. Fettig, Chairman and CEO, Whirlpool

Whirlpool (NYSE:WHR) announced a massive restructuring plan today as a result of decreased demand due to the weak global economy.

"We are in the midst of a rapidly changing and very challenging economic environment. We have seen a sharp drop in demand in North America and Europe during the third quarter, and we do not expect demand conditions to improve in the near term," said Jeff M. Fettig, Whirlpool Corporation chairman and chief executive officer. "Our third-quarter results were negatively impacted by declining demand and record levels of cost inflation. These unfavorable factors were partially offset by improved price/mix and productivity.

"The global credit crisis has had a profound negative impact on what was already a weakening and very fragile global economy. Declining home values, rising unemployment and very low consumer confidence levels will likely prolong a negative demand environment at least through the middle of 2009."

"In anticipation of this environment, we have announced substantial cost and production capacity reductions to adjust our business cost structure to expected demand levels. We will reduce our global workforce by approximately 5,000 positions by the end of 2009. In addition to the four facility closures we have announced earlier this year, we are also closing our Jackson, Tennessee facility and transferring production into our Findlay, Ohio location."

The company outlined the following actions:

-- A reduction in force of approximately 5,000 jobs, which is being implemented across the global organization. The reduction includes both jobs that have already been announced through plant closures along with new reductions taking place now and through the end of 2009:

-- The company will close its facility in Jackson, Tenn. Production from Jackson will be consolidated into the Findlay, Ohio plant. The closure will result in a reduction of approximately 500 positions. Since January 2008, the company announced the closure of plants in LaVergne, Tenn.; Oxford, Miss.; Puebla, Mexico and Reynosa, Mexico, which resulted in a reduction of approximately 2,000 jobs.

-- The company will reduce approximately 500 salaried positions throughout North America. These include both full time and contractor positions.

-- Whirlpool is implementing reductions across its international regions totaling approximately 1,900 jobs with the majority occurring in Europe. These are comprised of new reductions as well as those announced earlier this year.

-- These actions do not include current or potential future layoffs, which are intended to be temporary in nature.

According to Fettig, the actions are expected to produce savings of approximately $275 million on an annualized basis. "While decisions to eliminate jobs and close facilities are very difficult, they are necessary to create a cost-effective business structure. These changes will ensure that our company is proactively taking the necessary steps to adjust its cost structure and production capacity to lower expected demand levels."

Third-Quarter Regional Review

Whirlpool North America third-quarter sales of $2.7 billion declined 7 percent from the prior year. U.S. industry unit shipments of major appliances (T7)* declined approximately 11 percent.

Operating profit of $74 million declined from $132 million reported in the previous year. Significantly higher material and oil-related costs and lower industry demand were the primary factors affecting the company's third-quarter operating profit. These factors were partially offset by favorable price/mix and ongoing productivity initiatives.

Based on current economic conditions, the company expects full-year 2008 U.S. industry unit shipments to decline approximately 10 percent from 2007 levels compared with its previous expectation of a 6 percent to 7 percent decline.

Whirlpool Europe reported third-quarter sales of $1.1 billion, a 9 percent increase from the prior year. Excluding the effects of currency, sales were approximately equal to the previous year. Overall industry demand during the quarter declined approximately 4 percent from the prior year.

Operating profit decreased to $52 million from $84 million reported in the previous year. The region recorded an asset sale gain of $9 million in the third quarter compared with a $32 million gain in the previous year. In addition to the reduction in asset sale gains, European results were unfavorably impacted by higher material and oil-related costs, lower unit volumes and lower fixed cost absorption. These increased costs were substantially offset by favorable product price/mix during the quarter.

Based on current economic conditions in the European region, the company expects full-year 2008 industry unit shipments to decline 3 percent to 4 percent from 2007 levels compared with its previous expectation of a 2 percent to 3 percent decline.

Whirlpool Latin America net sales increased 22 percent to $1.0 billion. Sales results reflect continued strong demand for the company's innovative products in the region and favorable foreign currency translation. Excluding currency translation, sales for appliances and compressors increased approximately 11 percent.

Operating profit totaled $116 million in the third quarter compared with $103 million in the prior year. Increased appliance unit shipments, regional tax incentives, favorable price/mix and productivity were positive factors during the third quarter. These factors were mitigated by increased material and oil-related costs and the non-recurrence of a non-income based tax credit of $12 million.

Based on current economic conditions in Latin America, the company expects full-year 2008 shipments to rise 5 percent to 8 percent.

Whirlpool Asia reported third-quarter sales of $137 million, increasing 11 percent from the prior year. Excluding the impact of currency, sales increased approximately 16 percent predominantly due to higher unit volume. Operating profit during the quarter was breakeven. The year-over-year increase in operating profit resulted from higher volume and favorable trends in productivity and product price/mix. These favorable items were partially offset by higher material costs.

The company continues to expect full-year 2008 industry unit shipments to increase 5 percent to 10 percent from 2007 levels.

Outlook

The additional actions the company is undertaking to reduce costs across its global operations will result in additional restructuring expenses. For the full-year 2008, the company now anticipates recording restructuring expenses of approximately $170 million compared with its previous estimate of $100 million.

"Though we are in a challenging and uncertain economic environment, Whirlpool remains very well positioned to overcome these challenges and further strengthen our global operations," said Fettig. "The actions we are taking reflect the strong operating disciplines that are required to succeed in any environment. We will rapidly make the necessary changes to adapt to this economic environment and will continue to invest in the right areas that are key to our future success."

For the full-year 2008, Whirlpool now expects earnings per diluted share from continuing operations to be in the $5.75 to $6.00 range compared with its previous estimate of $7.00 to $7.50 per share. Based upon its revised earnings expectations and industry outlook, the company expects to generate free cash flow of $0 to $50 million for the full year compared to its previous estimate of $500 to $550 million.

Given the challenging economic conditions and its revised free cash flow outlook, the company has suspended its share repurchase program.